Ofgem highlights £100m Hinkley saving

The Informer
Posted on: 30/01/2018

Connecting the Hinkley Point C nuclear power station to the electricity grid could be £100 million cheaper under proposals unveiled by Ofgem.

The energy regulator has proposed using a “competition proxy” model under which National Grid would build the infrastructure but the amount of money it can make from operating the link will be capped by Ofgem at a rate equivalent to the work being put out for tender.

Ofgem estimates that the grid connection could cost around £800m to build.

The watchdog has proposed setting a “weighted average cost of capital” for National Grid to operate the upgraded infrastructure over a 25-year period of between 0.60% and 1.75%.

Experience from offshore wind farms

Ofgem has based the percentages on the lower rates of return recently bid by developers to operate grid connections to offshore wind farms.

Tendering for the construction and operation of wind farm cables has saved consumers £700m since 2009, the regulator said. The watchdog will make its final decision in the spring.

In a statement, National Grid said the regulator’s approach did not reflect the costs of financing and its estimate of £100m savings to consumers was too high.

“These parameters do not, in our view, offer the level of returns that would allow sustainable investment in the UK energy sector needed to deliver good outcomes for both customers and investors.”